DB Bridging Pensions

Marcon

optoutDB said:

Phossy said:

Couple of things:

1) All DB schemes are different, your 'breakeven' may be different from one scheme to another
2) Having said that. I note that your lump sum looks the same in both models. A Bridged Pension usually comes with a bigger lump sum too.

I just checked, the Illustrator is still giving the same Lump sum for stepped and straight. 

This makes sense to me as the max lump is probably based on a percentage of the total pension value. Maybe even legislated ??

The bigger problem here is that when I questioned the illustrator values (back when they were badly wrong) they said they were estimates and only a guide.  So I get the feeling that I'm going to have to obtain the full rules of the scheme and check everything myself.

Depends on the scheme rules. It isn't legislated (save for the requirement that any lump sum cannot exceed HMRC maximum).

FIREDreamer

Not important now, but in the LTA days a bridging pension was valued with a multiple of 20 even if only payable for a few years between retirement and SPA. So it would have used up a disproportionate amount of your available lifetime allowance.

optoutDB

I just had a phone call with Aptia that went very well.  No-one ahead of me in the queue, and they are sending me 2 quotations (one for 1st June, one for 1st July) I was expecting an "only 1 quotation per year reply" but that was based on my experience with Mercer.

Cobbler_tone

I'd received a quote to finish on the 1st March, just to calibrate against the online portal which was spot on. I have asked for another with a bridging option on my 56th birthday later in the year. I'll share the output.

Phossy

optoutDB said:

This makes sense to me as the max lump is probably based on a percentage of the total pension value. Maybe even legislated ??

I am sharing a real case - my lump sum is larger with the variable option. This is also consistent with other examples I was able to find on the web. I don't understand the mechanics (yet).

Tommyjw

For any schemes with this on (which isn't many isn't too common) ive worked on we quote a crossover (when values become equal) and breakeven (when total amounts paid become equal) age estimate in our correspondance based upon 3 different inflation estimates (low, medium, high) which is always useful, so be interesting if they add the same. 

optoutDB

Tommyjw said:

For any schemes with this on (which isn't many isn't too common) ive worked on we quote a crossover (when values become equal) and breakeven (when total amounts paid become equal) age estimate in our correspondance based upon 3 different inflation estimates (low, medium, high) which is always useful, so be interesting if they add the same. 

This makes me realise that for others to use my model I need to bring out into the open some more variables. Eg my DB pension is nearly all protected at 5%, with a bit at 2.5% (that's both pre and post payment).  And I usually assume the part remaining in the pension loses 0.1% to inflation. 

Can you share the values you use for low, med, high inflation?  

optoutDB

I have just gone through and extracted the latest values from the Aptia Pension Illustrator.

The heat map now looks sensible with things breaking even around 82 as others have said and the options being more even. The values were obviously wrong, sadly the new numbers are illustrating 13% less value at age 82 compared to Dec2024 forecast.

And it looks like the earlier 2023 L&G forecast tool was wrong also, at least for some of the options (overly generous on lump+stepped at least).  

Here's a question: Are the rules for how the various options are calculated set in stone in the scheme rules, and also  are they based on actuarial variables which can change?

Cobbler_tone

optoutDB said:

I have just gone through and extracted the latest values from the Aptia Pension Illustrator.

The heat map now looks sensible with things breaking even around 82 as others have said and the options being more even. The values were obviously wrong, sadly the new numbers are illustrating 13% less value at age 82 compared to Dec2024 forecast.

And it looks like the earlier 2023 L&G forecast tool was wrong also, at least for some of the options (overly generous on lump+stepped at least).  

Here's a question: Are the rules for how the various options are calculated set in stone in the scheme rules, and also  are they based on actuarial variables which can change?

I believe the lump sum is normally larger on a bridging (stepped in your words) pension.
When I get my actual quote I will share. I am also interested how the rises to the pension are applied. i.e. on the baseline or bridged pension. Like most things, all of these factors will be scheme dependant but there is nothing on this in the booklet.

optoutDB

If my quotations don't show the workings I will be going through the rules carefully to see if there are any hidden risks by taking it front loaded.  But my feeling is very much that the big risk is not front loading it if we get bad inflation. 

It's not an easy situation, because if eg I knew there was say 2 years of 10% inflation coming soon, I would keep it in deferment because I have the re-evaluation headroom to absorb that. But prolonged >5% inflation will hurt me more if I don't front load it.

I do have a baseline assumption that I can beat inflation, but I realise that could be hubris based on 10years of favourable global equity returns.